Labor appears set to reform capital gains tax discount after parliamentary inquiry findings | Tax
Labor has given one of its strongest signals but the capital gains tax cut will be revisited in the May budget and a parliamentary inquiry has found Howard-era environments have helped increase generational inequality in Australia’s housing market.
The Greens-led parliamentary inquiry said the 50 per cent discount “skewed home ownership away from homeowners and towards investors”.
“The benefits of the capital gains tax cut are also unequally distributed, leading to income and wealth inequality and intergenerational inequality,” the report published Tuesday said.
Chancellor of the Exchequer Jim Chalmers has signaled his willingness to change the discount applied in 1999 for assets held for more than a year.
The rebate, along with negative gearing rules, have been accused of promoting housing as an investment mechanism for wealthy Australians rather than the rights of first-time buyers.
Labor members on the committee linked the possible changes to government work already underway ahead of the May 12 budget and last year’s economic reform roundtable, which promised to address generational inequality in the tax system.
The Treasury is modeling changes that would see the discount reduced to 33% for home investors, while maintaining the current 50% rate for stocks and other investments.
Green Treasury spokesman Nick McKim used the report to argue that Labor’s majority and the Greens’ balance of power in the Senate represented an opportunity for the government to pass ambitious tax reform in the current parliament. The report stated that 57% of people aged 30 to 34 were property owners when the discount was applied. Later, this figure dropped to 50 percent.
“ [discount] This means that if you go to work as a teacher, bartender, or software developer, you’ll pay twice as much in taxes as someone who takes the same amount of money by buying and selling investment properties, taking advantage of rising real estate prices,” McKim said.
“This means someone speculating on housing pays a lower rate of tax than the carpenters, plumbers and electricians who build the houses.”
Chalmers stated that he will be informed about the findings of the report in the coming days and emphasized that budget decisions will be made by the cabinet.
“It will undoubtedly identify some problems that are familiar to us,” he said.
“But of course I will read, I will read. I said that the government’s policies in this area have not changed. The next steps will be a matter for the cabinet.”
But coalition senators vehemently rejected calls for change.
Liberals Andrew Bragg and Dave Sharma said in a statement: “If Labor tries to change the CGT cut it will be another simplistic, one-dimensional response that sidesteps the fundamental problem in housing that is not enough homes being built.”
“The real answer to housing affordability is more supply, not another Labor Party housing gimmick.”
Independent senator David Pocock used the report to suggest Labor had “over-learned” the lessons of election defeats in 2016 and 2019, when changes to the CGT and negative gearing were rejected by voters.
Pocock proposed removing the discount for properties purchased after July 1 this year, and introducing a new 25% discount for new homes. He called for negative regulatory regulations to be limited to a single investment property.
Research released last week by the Australian Council of Social Services found that the top five income voters nationally received 22% of all CGT rebate spending, while the bottom 10 voters received just 1.6%.
A tax report published this month by the independent Sydney Allegra Expenditure newspaper advocated for the CGT discount to be reduced to 30% as part of a wider package of reforms that would allow for big cuts to income taxes.
